North Carolina House Representatives Propose Amendments To Expand Debt Adjusting Prohibitions To Ban Debt Settlement

Just one week after North Carolina Senators proposed a bill seeking to license, examine, and regulate “debt settlement services,” several North Carolina House Representatives proposed a new bill that would seek to completely outlaw “debt settlement” in the state. The newly proposed law, entitled House Bill 734 (“H.B. 734” or the “Bill”) seeks to criminalize debt settlement with some statutory exceptions as explained further below in this article.

Currently, “debt adjusting” is prohibited under North Carolina law. However, if passed, the new Bill would amend the existing law to “expand” the prohibition of debt adjusting to also include (and, therefore, prohibit) “debt settlement,” effective July 1, 2025. The Bill passed its first reading in the House and has been referred to the House’s Judiciary 1 Committee. Should the Bill pass its second and third readings with the House, it will be considered by the State Senate, which will use the same process to decide whether to ultimately approve the Bill.

Under the proposed Bill, “no person, directly or through affiliates, shall engage in, offer to engage in, or attempt to engage in…debt settlement.” “Debt settlement” is broadly defined as “the business whereby a person holds themselves out as acting for consideration as an intermediary between a debtor and one or more of the debtor’s creditors for the purpose of reducing, settling, or altering the terms of payment of any debt of the debtor.” There would be some exemptions to the prohibition of debt settlement under the new Bill; however, these appear to be very limited. For example, “an attorney-at-law licensed to practice in [the] State and acting within the attorney-client relationship with the debtor” would likely be deemed exempt under the Bill, however, such exemption per se would not include (and, therefore, the newly proposed law seeks to prohibit) “services provided to a debtor by an attorney, or in the name of an attorney, who has entered in any arrangement with a person engaged, directly or through affiliates, in…debt settlement.”

All contracts for debt settlement would be deemed void as against public policy under the proposed Bill.  Significantly, any violators of the proposed law may be found guilty of a Class 2 misdemeanor and exposed to civil liability. To that end, the Bill would also grant the North Carolina Attorney General the authority to enjoin “the continuation of any . . . debt settlement business” as an unfair trade practice and to seek restitution to debtors harmed by any violations. In addition, if the proposed Bill is enacted, courts may assess civil penalties and award attorney’s fees against violators alongside any other remedies available under North Carolina or other law.

It will be interesting to see how these competing North Carolina legislations – House Bill 734 and Senate Bill 491 – progress through the North Carolina legislative process, as the bills present very differing approaches to debt settlement regulation in the state. Regardless of outcome, it is clear that North Carolina legislators have their sights set on regulating “debt settlement” services in the state. We will continue to monitor the Bill and provide you with any relevant updates. If you would like to read the full text of the proposed Bill, you may do so using the following link: https://www.ncleg.gov/Sessions/2025/Bills/House/PDF/H734v1.pdf.

Just a week after North Carolina Senators proposed Senate Bill 491, which seeks to create an act to license, examine, and regulate debt settlement services, North Carolina House Representatives Howard (R), Setzer (R), B. Jones (R), and Liu (D), as primary sponsors, proposed House Bill 734 (“H.B. 734” or the “Bill”), which seeks to modernize and expand the prohibition of debt settlement. Currently, only “debt adjusting” is prohibited under North Carolina law. If passed, the Bill would amend the existing law to expand the prohibition on debt adjusting to include “debt settlement,” effective July 1, 2025. The Bill passed its first reading in the House and has been referred to the House’s Judiciary 1 Committee. Should the Bill pass its second and third readings with the House, it will be considered by the State Senate, which will use the same process to decide whether to ultimately approve the Bill.

Under the proposed Bill, “no person, directly or through affiliates, shall engage in, offer to engage in, or attempt to engage in…debt settlement.” “Debt settlement” is broadly defined as “the business whereby a person holds themselves out as acting for consideration as an intermediary between a debtor and one or more of the debtor’s creditors for the purpose of reducing, settling, or altering the terms of payment of any debt of the debtor.” There would be some exemptions under the Bill; however, these appear to be very limited. For example, only “an attorney-at-law licensed to practice in [the] State and acting within the attorney-client relationship with the debtor” would be deemed exempt under the Bill, and the exemption would not include “services provided to a debtor by an attorney, or in the name of an attorney, who has entered in any arrangement with a person engaged, directly or through affiliates, in…debt settlement.”

All contracts for debt settlement would be deemed void as against public policy under the proposed Bill, and any violators may be found guilty of a Class 2 misdemeanor. The Bill would also grant the North Carolina Attorney General the authority to enjoin the continuation of any debt settlement business as an unfair trade practice and to seek restitution to debtors harmed by any violations. In addition, courts may assess civil penalties and award attorney’s fees against violators, alongside any other remedies available under North Carolina law. Any violation of the proposed Bill would also be considered an unfair trade practice, allowing for attorney fee awards and treble damages for private individuals.

It will be interesting to see how House Bill 734 and Senate Bill 491 progress through the North Carolina legislative process, as the bills present very differing approaches to debt settlement regulation in the state. Either way, it is clear that North Carolina legislators have their sights set on regulating debt settlement services in the state. We will continue to monitor the Bill and provide you with any relevant updates. If you would like to read the full text of the proposed Bill, you may do so using the following link: https://www.ncleg.gov/Sessions/2025/Bills/House/PDF/H734v1.pdf.